Co-Op Bank tweets taxpayer bailout denial

Co-Op Bank tweets taxpayer bailout denial

The UK's Co-operative Bank has been tweeting twitchy customers today promising that it is not seeking a government bailout in the wake of its debt rating being downgraded to junk by Moody's.

The ratings agency made its move last night, reasoning that the Co-Op Bank's "problem loan ratio" rose last year and warning that it could need "external help".

Then, within hours, the bank's chief executive, Barry Tootell, quit. He had been overseeing the ambitious plan to buy 632 branches from Lloyds Banking Group, which fell through last month.

Although savers are protected to the tune of £85,000 in the event of the bank going bust, customers have been using Twitter to voice their concerns and seek reassurance.

In a fuller statement on its Web site, the bank acknowledges its "disappointment" at the downgrade but insists: "We have a strong funding profile and high levels of liquidity, which are significantly above the regulatory requirements."

Finextra verdict:
With Twitter a well-proven medium for the spread of panic (witness the recent AP hack), the Co-Op's decision to tweet its message of reassurance to the world seems a sensible precaution against any potential bank run.

At the recent Swift Business Forum, MP Mark Garnier admitted that his enthusiasm for a system allowing customers to switch banks near-instantaneously could prove dangerous in the age where Twitter can induce a panicked herd mentality. Banks, and regulators, can't fight the flow of instant communication though - the only sensible answer is to take the initiative and, as the Co-Op has done, use it to your advantage.

Comments: (2)

A Finextra member
A Finextra member 13 May, 2013, 08:21Be the first to give this comment the thumbs up 0 likes

The only sound thing a bank can do to avoid runs by depositors after social media rumours on problems, is to have a strong balance sheet and thereby avoid being questioned on its capability to meet its commitments to depositors. If a bank does not have the strength well beyong the regulatory minimum requirements, it may have to face panic runs. Examples in estern Europe has shown that strong banks subject to false rumours extend their branch hours to allow anybody that wants to withdraw deposits even on Saturdays and Sundays to do so. Same sceptics line up on Monday morning to deposit monies again... Weak banks on the other hand close the accounts for withdrawals "for the time being" in concert with the government. The request for "public regulations" on how to manage runs can backfire on the proponent.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 May, 2013, 17:49Be the first to give this comment the thumbs up 0 likes


By quoting the AP Twitter hack incident in the context of Co-Op, are you by any chance implying that someone hacked into Moody's Twitter account and posted a fake tweet about downgrading Co-Op? For a lot of customers - including me, I'll admit - a downgrade of their banks' debt to junk is adequate trigger for getting butterflies in the stomach, Twitter or no Twitter. IMHO, banks who do a good job of banking management shouldn't have to bother too much about Twitter management.